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Big Companies Look to Startups for Lessons in Innovation

Big Companies Look to Startups for Lessons in Innovation
Credit: Wave Break Media/Shutterstock

In order to grow financially, large companies need to do a better job of working with their smaller counterparts, new research finds.

Large companies risk losing $1.5 trillion in growth opportunities by not collaborating more with entrepreneurs and startups when developing new ideas, according to a study by Accenture.

Businesses both large and small believe it's only a matter of time before the current models of collaboration will transition to a format where corporations no longer just fund startups, but instead use digital partnerships to jointly create innovations together.

The study revealed that 82 percent of executives from large companies believe that they can learn from startups and entrepreneurs about how to become digital businesses. Those executives anticipate that within the next five years, the proportion of their revenues generated by working with entrepreneurs will rise from an average of 9 percent today to 20 percent. [Collaboration, Not Competition: A Winning Small Business Strategy ]

“In the digital economy, corporations have the opportunity to disrupt their markets by working more effectively with innovative startups to jointly create new products and services," Paul Daugherty, chief technology officer, for Accenture, said in a statement. "That means corporates should not just fund startup innovation, but actively participate in it by pooling ideas, assets and intellectual property."

Researchers say the problem, however, is that entrepreneurs don't trust that large companies truly want to work with them on equal footing. The study found that although 41 percent of large company executives believe small businesses are committed to supporting their growth as they work together, less than one- quarter of entrepreneurs think large companies are similarly committed to supporting the growth of their smaller partners.

Overall, entrepreneurs and startup owners are four times more likely than corporate executives to think the other isn't committed to working together.

"The journey to open innovation requires large companies to recognize that collaboration cannot continue to be done on their terms, on their premises or just for their benefit,” Jitendra Kavathekar, managing director for Accenture's Open Innovation.  “To make a success of digital disruption will require new forms of innovation in which multiple partners collaborate to create, fail and try again in more experimental and entrepreneurial settings.

In order to work more successfully with small businesses and entrepreneurs, researchers recommend large companies take several steps:

  • Set a clear strategythat defines the goals for everyone involved as a way to give their smaller partners confidence that their return on investment and commitments will be shared equally.
  • Craft a budget for success in order to ensure that successful ideas can be scaled up when necessary and not abandoned after the pilot phase.
  • Create a larger range of financing models, from public grants to crowdfunding, as a way to meet the changing needs of entrepreneurs at different stages.
  • Instead of limiting their collaborative partnerships to one group, large companies should actively build larger networks by supporting and funding groups of partners.

The study was based on surveys of 1,002 entrepreneurs and 1,020 executives at large companies, as well as in-depth interviews with 20 executives at a range of companies and institutions.

Chad Brooks

Chad Brooks is a Chicago-based writer and editor with nearly 20 years in media. A 1998 journalism graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff full time as a senior writer. Before Business News Daily, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including local and state government, crime, the legal system and education. Chad has also worked on the other side of the media industry, promoting small businesses throughout the United States for two years in a public relations role. His first book, How to Start a Home-Based App Development Business, was published in 2014. He lives with his wife and daughter in the Chicago suburbs.